Visa, MasterCard in $6 billion settlement over card fees

View full sizeAssociated Press fileVisa, MasterCard and major banks have agreed to pay $6 billion to millions of merchants to end a dispute over card fees.

NEW YORK -- Visa,
MasterCard and major banks agreed to pay retailers at least $6 billion
to settle a long-running lawsuit that alleged the card issuers conspired
to fix the fees that stores pay to accept credit cards. As part of the
settlement, announced late Friday, stores from Rite Aid to Kroger will
be allowed to charge customers more if they pay using a credit card.

The
pact, which is being called by lawyers involved in the case the largest
antitrust settlement in U.S. history, is seen as a major victory for
merchants that have long complained about the billions of dollars in
so-called "swipe" or "interchange" fees that they pay to banks for each
purchase made using plastic. But at a time when shoppers increasingly
are using credit and debit cards, merchants will face a dilemma: Whether
to charge shoppers extra for using plastic, and if so, how to do so
without angering them.

Marilyn Landis, who was last year's
chairman of the National Small Business Association, said that the
settlement is a victory for small businesses across the country because
it could ultimately lead to banks lowering the fees they charge stores
for customers' credit card purchases.

Landis, who owns
Pittsburgh-based financial services firm Basic Business Concepts, said
that would be a big relief. She's now paying 3.75 percent each time a
customer pays with a credit card. If bank card companies reduce the fees
they charge her to 2.75 percent, she would save a dollar on every $100
in sales.

"That's huge," she said.

According to the National
Retail Federation, the nation's largest retail group, swipe fees cost
merchants about $30 billion per year. Mallory Duncan, senior vice
president and general counsel for the group, said the settlement is a
step in the right direction.

"What we need are changes in the
rules that bring about transparency and competition that would be here
for years to come," he said.

The dispute between stores and banks
dates back to 2005. That's when large retailers, including Kroger Co.,
Safeway Inc. and Walgreen Co. began filing price-fixing lawsuits against
Visa, MasterCard and other banks.

The retailers claimed the
credit card issuers worked together to fix the fees that stores pay to
accept credit and debit cards. The fees, which vary depending on the
type of store and the type of card issues, average about 2 percent of
the price of a purchase.

Visa and MasterCard make money on the
fees that stores pay for each customer that uses credit or debit cards
for their purchases. The fees are set by card processing networks but
collected by, and split with, the banks that issue the cards.

The
card companies long have defended the fees they charge stores. They say
stores benefit from being able to accept credit and debit cards from
customers, who often spend more when they're using plastic instead of
cash or checks.

Retailers fought to charge customers who use
plastic for their purchases extra. They've argued that the ability to
charge customers who use plastic more for their purchases would reduce
their costs for accepting the cards.

But up until now, Visa and
MasterCard have banned stores from charging customers who use credit
cards more. Merchants, however, have been allowed to offer customers
discounts if they pay with cash. Some gas stations do this, for example.

As
part of the settlement, credit card companies have agreed to reduce
swipe fees for eight months. The temporary reprieve on fees is valued at
$1.2 billion. The settlement does not apply to debit cards, which have
grown in popularity for small-value transactions.

"These new rules
will give merchants the tools they need to put pressure on the credit
card networks to lower interchange or swipe fees, which are the
second-or third-highest cost of doing business for many retailers," said
Patrick J. Coughlin, senior trial counsel at Robbins Geller Rudman
& Dowd LLP, and one of the lawyers for the plaintiffs.

Noah
Hanft, MasterCard's general counsel, said in a statement on Friday that
the decision to settle "was based on our belief that MasterCard and our
stakeholders are best served by an amicable resolution."

"Although
we have strong defenses to all claims, a settlement avoids years of
litigation and uncertainties that are inherent in such cases," he said.
"We believe that today's settlements should resolve all issues with the
merchant community."

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